EDITORIAL: The International Monetary Fund (IMF), in a report titled World Economic Outlook Update dated October 2024, noted that the world growth rate, at 3.3 percent, remained lower than the historical average of 3.7 percent 2000 to 2019, no doubt attributable to the onset of Covid-19 in late 2019 early 2020 and the two conflicts that have hampered global growth; notably, the Russia-Ukraine and the Israeli-Palestinian conflicts.
Given the continuing simmering global geo-political tensions, fuelled due to the emerging multi-polarity, the Fund’s projection for the global economy for current year, 2025 as well as in 2026, is 3.3 percent.
However, the Fund cautioned member countries against taking unilateral measures, including tariffs and non-tariff barriers or subsidies that could hurt trading partners and spur retaliation.
What is of deep concern to Pakistan is that we are currently on an IMF programme, with each disbursement critical to averting a looming default.
Our foreign exchange reserves have strengthened from a little under 2 billion dollars in the first half of 2024 to 11.75 billion dollars as of 10 January 2025, yet they remain insufficient to meet the three months’ of imports threshold required under international best practices.
And in the last two programmes — 2019 Extended Fund facility and 2024 Stand-By Arrangement — it was brought home to the government that the three friendly countries were unwilling to provide a roll-over of around 11 billion dollars until and unless the country was on a rigidly IMF monitored programme.
In this scenario, the current programme documents include the Fund staff assessment that “subsidies have taken the form of low-cost financing and other concessions, which although varied across industries, left financing and taxes net of subsidies more favourable than in peer economies and less-favoured sectors.
The tax system has been extensively used to provide non-transparent support through exemptions for privileged sectors like real estate, agriculture, manufacturing, and energy, as well as, through the proliferation of Special Economic Zones.
The government’s intervention in price setting, including for agricultural commodities, fuel products, power, and gas (biannual), combined with high tariff and non-tariff protection tilted the playing field in favour of selected groups or sectors.
Despite all this support, the business sector has failed to become an engine of growth, and the incentives eventually weakened competition and trapped resources in chronically inefficient (including perpetually “infant”) industries.”
This is indeed a damning indictment and explains why the Ministry of Finance, the lead player in negotiations with the Fund, has denied fiscal, monetary and tariff subsidies to the “infant” industries as requested by other relevant ministries, including the Ministry of Commerce.
However, what is indeed a matter of serious concern is that some provinces have begun to openly violate the terms of the Fund conditions by offering politically motivated monetary incentives, zero interest rate loans, which were possible in the past when the economy had not reached the level of fragility that it has today.
To those who argue that the IMF agreement is with the federal and not the provincial governments it is relevant to note the following in the 10 October 2024 documents uploaded on the Fund website relating to the staff level agreement reached between the Fund and Pakistan, which led to the 7 billion dollars thirty seven month long loan approval: “provinces are committed to contributing more to strengthening public finances.
The federal and provincial governments have agreed on the program’s fiscal strategy and the required provincial surpluses, and for provinces to deliver surpluses of around 1 percent of GDP in FY 2025.
The federal government and the provinces have also agreed to enter a National Fiscal Pact (end-September 2024 Structural Benchmark) that will devolve specific federal spending responsibilities to provinces, in line with the 18th Constitutional Amendment, and will enhance provinces own tax-collection efforts, including agricultural income tax (FY25), sales tax on services (FY26), and property tax (FY26).
The government has also established a dedicated committee, chaired by the Finance Minister, to prepare a comprehensive report on actionable items where responsibilities can be devolved to provincial governments, and with a specific implementation timeline.”
We hope that the scions of our political families leading provincial governments desist from taking measures that are violative of the IMF agreement till such a time as the national economy is on a firm footing and able to withstand politically motivated though economically flawed policies in the long run.
Copyright Business Recorder, 2025
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